BUDAPEST, Nov 10 (Reuters) - Hungary’s housing market needs “continuous monitoring” due to surging prices in Budapest and as a growing number of Hungarians take out mortgages to finance home purchases, the central bank said on Friday.

Strong economic growth, big wage increases ahead of a 2018 election, record-low interest rates and pent-up demand in the wake of the global financial crisis have sent Hungarian home prices skyrocketing, with further increases expected.

Home prices in Budapest have risen by 51 percent since the 2008 crisis, the central bank said in its biannual survey, while prices in western regions near euro zone neighbour Austria have increased by 25 percent over the same period.

“Overall, domestic housing prices still remain below the level justified by economic fundamentals,” the central bank said in its survey. “However, a continuous monitoring of the market is essential due primarily to rising lending and higher home prices in the capital,” it went on to say.

It said prices were set to increase further in the second half, projecting a 12.9-percent jump in prices in nominal terms for 2017.

Earlier this year the central bank, led by Governor Gyorgy Matolcsy a close ally of Prime Minister Viktor Orban, launched a certified mortgage scheme with local commercial banks, hoping to steer more borrowers towards fixed-rate mortgages.

The bank has also tightened lending requirements to prevent a repeat of a pre-crisis borrowing binge, which sent banks into steep losses and tens of thousands of borrowers into default.

Policymakers are also considering further steps to drive down longer yields to curb borrowing costs and stimulate lending even though Hungarian government debt yields are already below comparable U.S. Treasury yields up to a maturity of 10 years.

The loan-to-value ratio of new mortgages rose by 0.6 percentage points to 55 percent in the first half, the bank said in its survey, while the total cost of borrowing on newly-issued loans dropped by 0.4 percentage points to 5.1 percent.

Hungarians hold mortgages worth 8 percent of gross domestic product, well below the eastern European average of 20 percent, the central bank said, adding that on that basis, there was room for mortgage lending to expand.

However, it also said the relationship between mortgage borrowing and housing prices should be closely monitored. (Reporting by Gergely Szakacs Editing by Greg Mahlich)